only a share of the "front end" payment, if it was able to obtain such consideration. For any further remuneration, it must await royalty-bearing transactions.

"For Profit" patent management organizations are well suited to transfer university generated technologies. The technology transfer business is speculative investment

Only "For

of high cost professional capabilities for potentially large rewards at the end of lengthy time sequences. Profit" patent management organizations have the incentive to take the risks. By permanent professional staffing, the "For Profit" organization develops intimate relationships with individual researchers in the university community; it develops relationships of confidence and candor with industry. The "For Profit" organization is the agent of university to industry; it is correctly perceived to reflect academic goals in creating industrial relationships. It

does not bear the onus of big Government. academic altruism and commercial reality.

It mediates

GOVERNMENT PATENT POLICIES: INSTITUTIONAL

PATENT AGREEMENTS

WEDNESDAY, JUNE 21, 1978

U.S. SENATE,

SELECT COMMITTEE ON SMALL BUSINESS,

SUBCOMMITTEE ON MONOPOLY AND

ANTICOMPETITIVE ACTIVITIES,

Washington, D.C.

The subcommittee met, pursuant to recess, at 9:30 a.m., in room 424, Russell Senate Office Building, Hon. Gaylord Nelson, chairman, presiding.

Present: Chairman Nelson.

Also present: Gerald D. Sturges, professional staff member; and Karen Young, research assistant.

Chairman NELSON. The subcommittee will please come to order. Our first witness this morning is Dr. Donald Dunner of the American Patent Law Association.

Mr. Dunner, please proceed. Please identify your associates so the reporter will have a correct record.

STATEMENT OF DONALD R. DUNNER, ESQ., ATTORNEY AT LAW, ON BEHALF OF THE AMERICAN PATENT LAW ASSOCIATION

Mr. DUNNER. Thank you, Mr. Chairman.

On my right is Mr. John D. Upham, who is the immediate past president of the American Patent Law Association and a member of the executive committee of that Association; and on my left is Mr. James Laughlin, Jr., who is on the board of managers of the American Patent Law Association.

Mr. Chairman, I would like to thank you for the opportunity to present the views of the American Patent Law Association to you this morning.

My apologies for Mr. Banner not being here. Your invitation was to Mr. Banner, who you know is now Commissioner of Patents and Trademarks. He expresses his regrets at being unable to be here.

We are aware that the current phase of your hearings deals with Institutional Patent Agreements; however, there are certain underlying principles which run across not only Institutional Patent Agreements, but across the board to Government Patent Policy in general. I would like to address some of my comments to those broad principles; their relevance to IPAs will become readily apparent during the course of my remarks.

I would also like to address IPAs specifically. As we all know, Government Patent Policy is a highly emotional issue. The advocates on both sides of this issue usually take two extreme positions. On the one side, we have people who are in favor of what we call the title policy, with the Government getting full title to any inventions resulting from Government-funded research and development. On the opposite side, 180 degrees opposed, are those people who advocate the license policy, where the developers, the contractors, will have exclusive rights, with the Government having royalty-free rights for its own use.

Congress has legislated inconsistently in this area: It has legislated different programs for different agencies, it has legislated different guidelines for programs within agencies, and occasionally, it has legislated differently as to programs crossing agency lines.

Not only is this an issue that is emotional, but it is a highly complex issue, involving complex relationships, social factors, economic factors, business factors, technological factors.

By way of example, in his 1965 hearings held by Senator McClellan on Government Patent Policy, both proponents of the title policy and proponents of the license policy took a completely radically opposed view based on exactly the same fact situation, that involving penicillin. Those in favor of the title policy talked about how wonderful it was that penicillin was commercialized with extensive competition at very low prices, and those who supported the license policy used the same example to show how the system failed, that penicillin was invented in 1929 and that it was not commercialized until 1944, and then only because the Government commerialized it.

Here we have exactly the same set of facts supporting opposite conclusions.

In these very hearings you have conducted, you have had references made to the nonnuclear energy act patent provisions. On the one hand, Admiral Rickover has said this is a perfect example of how the system fails, of how windfall profits result. On the other hand, we have had Chairman Pertschuk of the Federal Trade Commission, and Assistant Attorney General Shenefield talk about the fact that the nonnuclear energy act patent provisions provide a wonderful example of how the system works.

The issues have also become clouded because of emotionalism involved in references to windfall profits, references to Government give-aways, references to suppression of inventions.

It is our concern that these emotional issues have too often controlled the dialog in the Government Patent Policy arena, yet we are aware of no factual basis for any one of these or related emotional issues.

On the contrary, we have cited in our paper Government-supported studies, one of which-the Harbridge House study-is the largest Federally-funded, most thorough study ever conducted we know of on Government Patent Policy.

What did it find?

It found that Government ownership with an offer of free public use does not alone result in commercialization of research results.

It found more significantly that there was a low overall commercial utilization of Government-generated inventions in the neighborhood of 12 percent, and that that figure doubled when exclusive rights were given to contractors with commercial background positions.

It further found that windfall profits do not result from contractors retaining title to Government-funded inventions.

And, finally, it found that little or no anticompetitive effect resulted from contractor ownership of inventions, because they normally licensed their technology, or where they did not license their technology, alternative technologies were available, and we are talking of Government-funded technology.

Chairman NELSON. What was the date of that study?

Mr. DUNNER. 1968, Mr. Chairman.

Now, in light of that study, it is our feeling that a rational Government Patent Policy should address the real issues, rather than the emotional issues.

We feel we should not be talking of windfall profits, give-aways, suppression or the like, but the question is, and the question we should be addressing is, how do we best encourage commercial utilization of Government-funded R. & D. results so that the Government will benefit the most.

Stated differently, we do not disagree with the proposition that what the people pay for they should benefit from, but the question is not whether they are windfalls or what have you; the question is how do we get them to benefit most in Government-funded R. & D. results. If we get them to benefit most by a policy which grants exclusive rights to Government contractors, then that is the policy we should follow. If the public benefits most by a different policy, that is the policy we should follow. But we do not reach the answer of what policy we should follow by using what I feel are catch phrases. In answer to the question of how we maximize the benefit to the public, I would like to address specifically the concept of granting exclusive rights to Government contractors.

The Harbridge House report to which I referred just a moment ago addresses the question of whether granting exclusive rights will on balance, promote invention utilization more than not granting such exclusive rights. That study answers that question with a "yes" in at least the following circumstances: (1) Where the inventions as developed under Government contract are not directly applicable to commercial uses and the inventor-contractor has commercial experience in the field of the invention, and (2) where the invention is commercially oriented but requires substantial private development to perfect it, or applies to a small market, or is in a field occupied by patent-sensitive firms and its market potential is not enough to bring it to commercial utilization.

Now, a second point which I would like to address is the repeatedly cited point mentioned by Admiral Rickover and others that contractors are standing in line waiting for the opportunity to sign on the dotted line of the Government contract, and that we can always find companies, corporations and otherwise, to do the work for the Government.

Oftentimes this statement is true. Perhaps even usually the statement is true. But the question is: When the companies sign up, are you getting the most qualified companies, are you getting the companies with the right background, are you getting the companies that will make the program a cost-effective program?

We submit that the answer is clear: The answer is that that does not always happen. In fact, there are significant results which are of record which show that it often does not happen.

I would like to refer you, Mr. Chairman, to the hearings in the 94th Congress, second session, before the House Subcommittee on Domestic and International Scientific Planning and Analysis, of the Committee on Science & Technology. During those hearings, cases were cited when a lack of proprietary position available to Government contractors deterred significant Government contractors, large and small, companies like General Electric, companies like Motorola, other companies, from participating in Government contracts.

I will not burden you by giving you specifics. The specifics are set forth in the paper provided by the American Patent Law Association.

Chairman NELSON. What exactly are you saying: That companies would not accept a Government contract for research and development because it did not provide that they would be entitled to take title to any inventions discovered by them?

What was the precise point?

Mr. DUNNER. Mr. Chairman, I think that is a good question, but the reasons vary.

The reasons may extend from a situation which in fact recently happened to a client of mine in a presently ongoing ERDA situation. A client of mine, a small research and development company in Troy, Mich., has declined to get involved in a very significant energy-related program, because it was concerned that many of its background patents would fall under the umbrella picked up by the Government, where it would not have exclusive rights because it had not actually reduced to practice its inventions, although it had constructively reduced them to practice by having a patent application filed. That is one situation, and there are other situations where R. & D. is picked up during the contract term, not necessarily patent matters, but know-how or trade secrets. Contractors have concerns about losing rights to those matters, concerns about losing potential rights to foreign governments, and the like. There are a variety of situations which might be mentioned, and they are spelled out in those hearings.

Now, I would also like to direct you, Mr. Chairman, to another point relevant to your question. This morning at a quarter of 6 my phone rang. I would have been very angry but for the fact it was a friend directing me to page 15 of today's Washington Post, which contained a story about a recent 2-day meeting of the American Association for the Advancement of Science.

I would like to read this article:

The United States is losing its competitive edge in technology because American industry is spending less on research and because the federal government withdrew much of its support for industrial research at the ends of the Apollo space program and the Vietnam war.